President of the European Central Bank (ECB), Christine Lagarde, has warned that the U.S. dollar’s reserve currency status should not be taken for granted. She admitted that there are attempts to de-dollarize by various countries, which means “new trade patterns may have ramifications for payments and international currency reserves.”
ECB’s Christine Lagarde on De-Dollarization and Alternative Currencies
In an interview with the Council on Foreign Relations, Christine Lagarde discussed the widespread trend of de-dollarization across the globe. She highlighted that the U.S. dollar has been the leading international currency for transactions and reserves, with the euro in second place.
Lagarde mentioned that the increasing trade between China and emerging markets may lead to “new alliances”, which could result in a country’s reserve holdings being increased by roughly 30 percentage points. She added:
All this could create opportunities for certain countries seeking to reduce their dependency on our Western payment system and currency frameworks.
The ECB president did emphasize that the present data do not indicate a substantial shift away from the U.S. dollar or the euro, however, the data do suggest that the international currency status “should no longer be taken for granted”.
An increasing number of countries are using local currencies for trade settlements instead of the U.S. dollar. Moreover, the BRICS nations (Brazil, Russia, India, China, and South Africa) are reportedly creating a new type of currency which will further decrease their dependence on the USD.
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